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HOUSING AFFORDABILITY
C.A.R. Research & Economicswww.car.org/marketdata
HOUSING AFFORDABILITY AND HOMEOWNERSHIP
2015 - WHERE ARE WE TODAY?
• Housing market is under-preforming given fundamentals – Low mortgage rates– Job & Income growth are back
• And yet…– Sales off 7.6% in 2014 compared to 2013– Share of first-time buyers LOW– Affordability key concern for renters
INADEQUATE HOUSING SUPPLY ISSUE
• Housing supply constrained in long-run– New construction recovery is very slow– Missing 165,000+ new units per year – Production has fallen short of housing needs
• Inhibited by– Fiscal interests of local government– Residents who disdain further development,
especially multi-family– Unfavorable legal/business environment for
development in general & multi-family in particular
CALIFORNIA’S 3 HOUSING GAPS
• Housing Gaps: – Housing affordability gap– Homeownership gap– Housing production gap
• Chronic problems spanning decades
AFFORDABILITY GAP
HOUSING AFFORDABILITY DOWN SHARPLY SINCE Q1 2012
California vs. U.S. – 1984-2014% OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME
SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
19841986
19881990
19921994
19961998
20002002
20042006
20082010
2012
Q2 2012
Q4 2012
Q2 2013
Q4 2013
Q2 2014
Q4 20140%
10%
20%
30%
40%
50%
60%
70%
80% CA USAnnual Quarterly
HOUSING AFFORDABILITY IN CA: BY COUNTY
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HAI
0
10
20
30
40
50
60
7064
59 57 56 56 53 5350 49
4541
31 29 29 28 27 27 26 24 23 22 21 21 2017 15 15 14
% able to purchase median priced home2014 Q4
INCOME REQUIRED TO BUY A MEDIAN-PRICED HOME IN CA: (PEAK VS. CURRENT)
2012 Q1 2014 Q4$0
$20,000
$40,000
$60,000
$80,000
$100,000
$56,324
$91,552 • Change in minimum required income: $35,228
• Increase in income attributed to interest rate increase: $338 (1.0% of total change)
• Increase in income attributed to price increase : $34,890 (99.0% of total change)
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
VERY SLOW REAL INCOME GROWTH
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.00
U.S. CAIn 2013 Dollars
SERIES: Median Household IncomeSOURCE: US Census Bureau, Current Population Survey
2013 gap = $5,600
Chefs and Head Cooks
Teachers Firefighters Police and Sherriff's Patrol Of-
ficers
Computer Pro-
gram-mers
Registered Nurses
Software Developers
(Applica-tions)
Min. Inc Required to Buy a Med.
Home
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$47,540$55,660
$71,630
$86,040$89,450$96,980
$112,180
$91,552
HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
Annual Mean Wage
California
HOUSING AFFORDABILITY GAP
• Affordability crisis goes beyond low income households– Lack of affordable housing for low income
service workers is apparent– Less obvious problem: moderate income
households who cannot afford homes in/near communities where they work
– In general, there are programs to assist the first group, but not the second group
HOUSING AFFORDABILITY INDEX - CA
What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%0%
10%
20%
30%
40%
50%
36%34%
32%30% 28% 26%
24%23%
Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
MEDIAN MONTHLY MORTGAGE PAYMENT - CA
What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$1,525$1,624
$1,727 $1,833$1,942
$2,054$2,169
$2,286Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
MINIMUM QUALIFYING INCOME - CA
What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$81,798$85,768
$89,873$94,108$98,468
$102,949$107,544
$112,249Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
Minimum Qualifying Income
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HOMEOWNERSHIP GAP
HOMEOWNERSHIP RATES
California Vs. U.S. – 9.9% gap in 2014
40%
45%
50%
55%
60%
65%
70%
75%
53.7%
Peak: 60.2%
54.9%
64.5%
Peak: 69.0%
64.8%
CA US
SERIES: Homeownership RatesSOURCE: U.S. Census Bureau
HOMEOWNERSHIP RATE BY AGE OF HOUSEHOLDER
SOURCE: Census Bureau
OVER 1/3 LIVE WITH THEIR PARENTS
What is your current living situation?
I rent I live with my parents
I own I live in a dorm
Other:0%
5%
10%
15%
20%
25%
30%
35%
40%
45%41%
36%
20%
1%1%
SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
MILLENNIALS’ BIGGEST CONCERNS
What are your biggest concerns about home ownership?
Price/Affordability (45%)
Problems with Credit, Mortgages, or Taxes (19%)
Maintenance/Upkeep (14%)
Satisfaction with Home/Location (7%)
Responsibility (4%)
SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
SHARE OF FIRST-TIME BUYERS UP IN ’14 BUT STILL BELOW LONG-RUN AVERAGE
2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
10%
20%
30%
40%
50%
28.1%30.5%
% First-Time Home Buyers Long Run Average
Long Run Average = 38%
QUESTION: Was the buyer a first-time buyer?SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
WHY DO WE CARE ABOUT LOW LEVEL OF FIRST-TIME BUYERS?
• It signals a constrained flow of new households in the housing market
• Trade-up market cannot be replenished in the long run
• First-time buyers represent the main impulse that drives the state’s homeownership rate
REASONS FOR RENTING INSTEAD OF BUYING
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if renting
Cost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
44%
9%
6%
6%
6%
5%
5%
3%
2%
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
STUDENT LOAN DEBT:25% OF RENTERS
Yes; 23%No; 75%
Refused; 2%
Student Loan Debt
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
<$10,000
$10-$20K
$20-$50K
$50-$100K
> $100K
Refused
78%
8%
6%
3%
2%
2%
Amount of Debt
STUDENT DEBT: DRAGS ON HOME SALES
CALIFORNIA’S HOUSING DELIMMA
• Even with everything (or at least most things) going right, our homeownership market is in trouble…
• The rental market, even with the conversion of 500,000 SFH’s, is still exhibiting inadequate supply
• CA Housing Needs = Minimally 165,000 Units Annually– Regulatory Problem– Impact Fees– Public Attitudes
HOUSING PRODUCTION GAP
CA PERMITS UP BUT MORE UNITS NEEDED
2014: 85,065 Units, Up 3.4% from 2013
SERIES: New Housing PermitsSOURCE: Construction Industry Research Board
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
Household Growth: 220,000-250,000/yr
2009 2010 2011 2012 2009 - 2012-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
-5,485165,105
223,058
575,156
957,834
Households not formed
# OF HOUSEHOLDS LOST IN THE GREAT RECESSION
SOURCE: California Dept. of Finance; compiled by C.A.R.
POPULATION AND HOUSEHOLDS WILL CONTINUE TO GROW
California 1970-2020
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
SOURCE: Moody’s Analytics
HOW DID WE GET HERE?
Why the Production Shortfall?• Shortage of Land:
– Production shortfall greatest in cities where need is most critical
• High Costs of Development– Fees in most California communities are higher than elsewhere
in US– Infill development costs higher than suburban development
costs– Environmental policies, etc increase costs– Lengthy permitting process increases cost per unit produced
and favors deep pockets
HOW DID WE GET HERE?
• General Desire for Low Density Land Use– Preference for detached single family homes– Disdain for multifamily developments
• Cost of service to cities higher than other land uses
• NIMBYism: – Desire to preserve existing character of community– Dislike for multifamily, higher density development by
residents and officials– Quality of life concerns– Fear of crime and other negative aspects associated with
density
WHAT IS OUR FUTURE?
“…If current trends continue, California will build less than 60 percent of the new housing needed over the next 20 years.”
Little Hoover Commission Report on Housing in California
SOLVING CALIFORNIA’S HOUSING PROBLEM
SOLUTIONS
• Production Gap is Primary Source of CA’s Housing Problems
• Solutions must include:– Increase in Production
• Infill and brownfield opportunities in urban areas where shortage is critical
– Revitalization of Neighborhoods– Change Incentive Structure Facing Cities
• Fiscal• Housing & Zoning Requirements• Enforce housing elements of general plans, create incentives to
comply– Improve Business & Legal Climate for Developers
SOLUTIONS
• Attitude Shift is Essential to Moving Toward Solutions…– By Households as Residents– By Households as Taxpayers– By Local Elected Officials– By State Officials
• … and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions!
• Solutions will take time
SOLUTIONS - LOCAL
• Permanent city affordable housing subsidy source• Dedication of a share of county tax increment
financing to affordable housing• Revise zoning code and/or density bonus
ordinance to increase• Ease parking and set-aside requirements to
enable more backyard homes; granny flats• Convert unlawful but affordable units• Collaborate with business community
SOLUTIONS - STATE
• CEQA Reform• Inclusionary Zoning• Experiment with social impact bonds &
health funds as a source
2015 FORECAST
CALIFORNIA HOUSING MARKET OUTLOOK
2009 2010 2011 2012 2013 20142015f
SFH Resales (000s) 474.9 416.5 422.6 439.8 414.9 383.3 402.5
% Change 24.5% -12.3% 1.4% 4.1% -5.9% -7.6% 5.0%
Median Price ($000s) $275.0 $305.0 $286.0 $319.3 $407.2 $447.0 $478.7
% Change -21.1% 10.9% -6.2% 11.6% 27.5% 9.8% 7.1%Housing Affordability Index 51% 48% 53% 51% 36% 30% 27%
30-Yr FRM 5.0% 4.7% 4.5% 3.7% 4.0% 4.3% 4.5%
SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
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